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  • Frank Holmes Talks No-Drama Investment Strategy

    Frank Holmes' advice to investors? Chill. In his interview with The Gold Report, the veteran commodities investor shared some strategies that help him "sit back and stay balanced," namely by diversifying and following the money. Find out about the indicators Holmes watches to read the market's pulse, and why a +/- 35% move for gold doesn't keep him awake at night. Holmes also profiles his favorite mining stocks, including one that generates what could be the highest per-employee revenue in the world.

    The Gold Report: Your talk at the New Orleans Investment Conference was titled "The Optimistic Investor in a Pessimistic World." How do you stay so positive when gold falls 2% or even more in a day?

    Frank Holmes: The biggest thing when it comes to gold-something I've always advocated-is to maintain a 10% weighting, 5% in gold stocks and 5% in gold jewelry or coins, and to rebalance each year. That has been a wonderful way for investors to deal with the volatility of the capital markets and to sleep at night.

    TGR: What is happening in commodities? What are the most important indicators you're watching?

    FH: If you're really in tune to the stock and commodity markets day in and day out, it's kind of similar to arriving at a party and being able to tell if there is good energy or if it's not the place for you. There are these patterns you notice.

    When it comes to commodities, a magic number for looking toward the future is PMI, which stands for Purchasing Manufacturers Index. In America, it's often called the ISM Manufacturing Index, which is exactly the same. J.P. Morgan publishes a global PMI every month, which surveys the major economies of the world, the G20 countries. I like to look at what happens when the one-month average of the world is above the three-month average, and what happens when it goes below. It's remarkable to see the law of inertia take hold.

    The global PMI was so very strong in 2003, 2004, 2005 and 2006. Europe, America and Asia were just roaring, and commodities were ripping. Since 2008, the patterns have changed. There are so many new fiscal rules, Federal Advisory Committee Act [FACA] rules, money movement rules, etc., that you can't get the synchronized global PMI running in a very constructive way.

    But it's important to look at what Europe is doing, because Europe is a bigger economic trading partner with China than America is. So when Europe slows down, that puts a real dent in China's economic prosperity. But the real psychology in the stock market is Quantitative Easing 3 [QE3] ending.

    TGR: Do you think the headlines about ending QE3 are a short-term pain for the commodities market, particularly precious metals?

    FH: The biggest thing that's really hurting commodity markets, and gold in particular, is a stronger dollar. Whenever the real rates of return in America are negative, gold starts to rally, which it did for the first six months of this year. And now the rates have gone positive. So all of a sudden, gold starts taking it on the chin. But the positive note is that India has been buying gold and so has China-there has been record demand on the back of these selloffs. There is a slow tectonic shift taking place globally for this credible metal.

    TGR: Let's talk about how the fundamentals vary among asset classes and whether the volatility we're seeing right now is normal.

    FH: We did a special report in August/September, trying to explain this DNA of volatility. The piece was called "Managing Expectations: Anticipate Before You Participate." Everything in life is about managing expectations. As Warren Buffett says, if you want to have a long-lasting marriage, have low expectations, and everything is on the upside. The same thing happens with earnings. Do you expect the PMI to be positive? Do you expect the earnings to be positive?

    What we have done in our research is look at all the asset classes, and we have noted that they each have different DNAs of volatility. When you look at gold and the stock market, it's about the same. It's a nonevent for gold to go +/-15%, and it's normal for the S&P 500 to go +/-15%. But mining stocks, energy stocks, emerging markets and biotechnology have a DNA of volatility of +/-35%. If biotechnology is off 35%, it's brutal feeling it as an investor, but it's just normal. So right now, we have gold stocks off 35% over 12 months, and they're down one standard deviation.

    Now, if gold falls 50%, that means the odds favor a reversal. Last year at Christmastime, we commented that gold stocks and bullion were down two standard deviations, and we were due for a big rally. And positive interest rates went negative until June. Over those six months, gold rallied right back to its mean. Everything reverts to this mean average, which is important for investors to recognize. So when you're looking at the volatility, it shouldn't frighten you. The only time you really lose on this is if you're forced out of a holding.

    TGR: As we're entering tax-loss selling season, what is your strategy for the end of the year?

    FH: I look for companies that are trading way below their book value and are candidates to be taken out. When you go down the junior spectrum, the question is how much cash does a company have, and can it survive for two years without any funding. If not, then there is dilution risk. I try to stay away from the micro-cap stocks, which often spend money faster than they're able to get their per-share reserves or production up.

    TGR: You still have more than 80% of the Gold and Precious Metals Fund and more than 90% of the World Precious Minerals Fund in gold. What is your strategy there? What are your top performers?

    FH: I think royalty companies are the safest plays-Franco-Nevada Corp. (NYSE:FNV) , Royal Gold Inc. (NASDAQ:RGLD) and Silver Wheaton Corp. (NYSE:SLW)-the three amigos. They have high-margin businesses and low cost of capital, and there are very smart people running these companies. When you take a look at a company like Silver Wheaton, 30 people are generating $500 million [$500M] in revenue. It's probably the most profitable company per employee in the world.

    TGR: And lower risk.

    FH: Correct, much lower risk. Now, when it comes to the junior spectrum, we like the stock to have great management, have a wonderful footprint from a geological point of view, be increasing its production and be very conscientious of dilution. Klondex Mines Ltd. (OTCQX:KLNDF) is one of those companies that has done a great job of respecting value per share. When it comes to big caps, Randgold Resources Ltd. (NASDAQ:GOLD) is another company that's conscientious about dilution and doing transactions that are extremely accretive.

    TGR: Klondex just reported some drill results at Fire Creek. Have you been happy with the progress it's making?

    FH: Yes. We're very happy with the company and management. It has a great track record. It has the sponsorship of Franco-Nevada. I think that's an excellent company.

    Another royalty company we have is Virginia Mines Inc. (OTCPK:VGMNF) [VGQ:TSX]. It has a big, healthy balance sheet, lots of cash and the ability to grow over time. I think that stocks like that will be rerated on any bounce in gold. They will bounce more than the Market Vectors Junior Gold Miners ETF (GDXJ:NYSE.MKT) will.

    TGR: What silver companies in the fund are doing well?

    FH: The silver companies are having a more and more difficult time. The safe play for silver is Silver Wheaton.

    TGR: What about other companies active in Mexico?

    Ralph Aldis: MAG Silver Corp. (NYSEMKT:MVG) has been advancing the Juanicipio project in Mexico. From what I understand on the ramp development at Juanicipio, MAG Silver has advanced the ramp to around 600 meters in length. The development has been slower in the upper portion of the ramp due to the more weathered nature of the rock and the occasional intersection of silicified zones, which requires additional efforts to work through. Now MAG Silver is in more of the fresh volcanic rocks and advancing at about 115 meters per month. Currently it is about one-third through the estimated 30-month timeframe to reach the vein.

    Fresnillo Plc (OTCPK:FNLPF) [FRES:LSE], its partner, seems to be moving the process along at a "not-too-fast" rate. Fresnillo's dilemma is that should it decide to buy out MAG Silver, it may have to pay a higher price once the Juanicipio is in production.

    The bigger issue, which could potentially move the share price of MAG Silver higher in the near term, would be a resolution to access to the Cinco de Mayo Zn-Pb-Au-Ag carbonate replacement deposit, after being expelled by a more radical landowner group in the area. I believe MAG Silver is making progress on resolving this issue. Hopefully we will get a positive update in the first quarter next year.

    TGR: Frank, you just won some awards for education. What is the role of education in your operation?

    FH: My blog goes out to tens of thousands of people in 193 countries, so it's amazing to see the readership. We've won about 64 awards in the past seven years. This year it was a record 10. The one that gets the No. 1 e-letter is Investor Alert. That is written every Friday night. Many publications can't produce a product like this because compliance is so rigorous, but we are able to get it out to shareholders for the weekend read. It's written by our investment team. It assesses the strengths and weaknesses of the portfolio, presents an outlook for the following week and notes major opportunities and threats. The SWOT model always has three sentences for each section and usually a chart. The fact that it's put together by the investment team makes it much more credible and timely, but it's also succinct.

    TGR: Educate us. Give us something to be hopeful about.

    FH: We're seeing record numbers of companies buying back more than 4% of their stock every year. Apple announced a 20% buyback and increased its dividend. I'll give you a good data point: Ten years ago, you bought your first iPod. Facebook was just being created. Today, 10 years later, Facebook does about $12 billion [$12B] in revenue, and the iTunes component of iPod does $18B in revenue. What Apple is doing is creating products that are synchronized together, sort of a holistic ecosystem. There is wonderful innovation in America. These things are important for overall growth in the economy.

    Another positive note: There are lots of opportunities in basic materials and resources. While we're talking, there are 7 billion people on Mother Earth. On the other side of the world, there are 100 million people having sex. And in nine months, there are going to be 1 million screaming babies, and that population growth is not going to stop.

    TGR: And you have a great chart [see beginning of interview] that shows how many resources that baby will use over his or her lifecycle. What are some of the highlights on the commodity side?

    FH: In 1972, China and India had no global footprint. They only had 2% of the world's gross domestic product. Today, they're 25% and 40% of the world's population. Down the road, this is very positive for commodities. When these commodities turn and we finally get synchronized growth, then I think what's going to happen is a streamlining of rules and regulations. Where you are getting the fastest growth is where there are tax breaks.

    TGR: Do you think the results of the recent midterm elections will be positive for this regulatory environment?

    FH: We'll see what happens when it happens. The difficult part for the average investor is that the best the stock markets have been is with a Democratic president and a Republican Congress. That's why we like to say that you should be diversified and follow the money. I've written about the fact that under Obama, there's been a spectacular stock market run. It's shocking. Why? Because so much capital has been injected into it. I think that one has to sit back and be balanced. One of the big things we told investors in New Orleans is that if you're worried about all this volatility, then we have the no-drama fund, the Near-Term Tax Free Fund (MUTF:NEARX). Morningstar has just given it a 5-Star Overall rating.

    Investors age 50-55 are about 15 years away from retirement. It's not a good time to take big risks like putting all assets in the stock market. Witness the huge crash of 2008 when individuals about to retire lost their nest eggs. When you compare the growth of the Near-Term Tax Free Fund over 13-14 years with the S&P 500, you can see that the fund has grown with relatively low risk. The stock market had a wild ride, but earned only a tiny bit more.

    TGR: Thanks for talking with us.

    FH: A pleasure, as always.

    This interview was conducted by JT Long of The Gold Report and can be read in its entirety here.

    Frank Holmes is CEO and chief investment officer at U.S. Global Investors Inc., which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure. Holmes purchased a controlling interest in U.S. Global Investors in 1989 and became the firm's chief investment officer in 1999. Under his guidance, the company's funds have received numerous awards and honors including more than two dozen Lipper Fund Awards and certificates. In 2006, Holmes was selected mining fund manager of the year by the Mining Journal. He is also the co-author of "The Goldwatcher: Demystifying Gold Investing." He is a member of the President's Circle and on the investment committee of the International Crisis Group, which works to resolve global conflict, and is an adviser to the William J. Clinton Foundation on sustainable development in nations with resource-based economies. Holmes is a much sought-after keynote speaker at national and international investment conferences. He is also a regular commentator on the financial television networks CNBC, Bloomberg and Fox Business, and has been profiled by Fortune, Barron's, The Financial Times and other publications.

    Ralph Aldis, CFA, rejoined U.S. Global Investors as senior mining analyst in November 2001. He is responsible for analyzing gold and precious metals stocks for the World Precious Minerals Fund (MUTF:UNWPX) and the Gold and Precious Metals Fund (MUTF:USERX). Aldis also works with the portfolio management team of the Global Resources Fund (MUTF:PSPFX) to provide tactical analyses of base metal, paper, chemical, steel and non-ferrous industries. Aldis received a master's degree in energy and mineral resources from the University of Texas at Austin in 1988 and a Bachelor of Science in geology, cum laude, in 1981, from Stephen F. Austin University. Aldis is a member of the CFA Society of San Antonio.

    Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

    DISCLOSURE:
    1) JT Long conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. She owns, or her family owns, shares of the following companies mentioned in this interview: None.
    2) Frank Holmes: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. The following companies mentioned in this interview are held in U.S. Global Investors funds: Apple, Franco-Nevada Corp, Klondex Mines Ltd, Randgold Resources Ltd, Royal Gold Inc, Silver Wheaton Corp, Virginia Mines Inc. and MAG Silver Corp. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    3) Ralph Aldis: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. The following companies mentioned in this interview are held in U.S. Global Investors funds: Apple, Franco-Nevada Corp, Klondex Mines Ltd, Randgold Resources Ltd, Royal Gold Inc, Silver Wheaton Corp, Virginia Mines Inc. and MAG Silver Corp. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    4) The following companies mentioned in the interview are sponsors of Streetwise Reports: Silver Wheaton Corp., Virginia Mines Inc., MAG Silver Corp. and Klondex Mines Ltd. Franco-Nevada Corp. is not affiliated with Streetwise Reports. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
    5) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
    6) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
    7) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

    Streetwise - The Gold Report is Copyright © 2014 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

    Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

    Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

    Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

    101 Second St., Suite 110
    Petaluma, CA 94952

    Tel.: (707) 981-8999
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    Nov 10 3:33 PM | Link | Comment!
  • Paul Adams: Macro Trumps Micro In Resource Sector

    Investors in Australia's junior mining sector are feeling the same pain as those in North America but Paul Adams, an analyst with brokerage firm DJ Carmichael in Perth, believes select junior resource companies will outperform the broad markets as macro-level events impact certain commodities. In this interview with The Gold Report, Adams suggests that strong demand fundamentals in nickel, zinc and uranium could mean better years ahead for equities with exposure to those commodities. Adams also discusses DJ Carmichael's new investment strategy.

    The Gold Report: Mining in Australia is dominated by coal and iron ore production, much of which is controlled by large players like BHP Billiton Ltd. (NYSE:BHP) and Rio Tinto Plc (NYSE:RIO). Please give our readers an overview of the state of the junior mining sector there.

    Paul Adams: Like many companies in the junior space in North America, and Canada in particular, junior miners in Australia have suffered from the downturn in commodity markets. Here in Western Australia, the fall in the iron ore price has not only affected the large miners, it's affected the juniors even more. Some miners have already ceased production at high-cost operations. Many jobs have been cut in both large and small mining companies and in the service companies that supply them.

    A general feeling of gloom hangs over Western Australia, even though 2013 and 2014 have been relatively good years for the general market. It's certainly a different story for many of the small- to mid-cap miners, especially the exploration companies. Since Aug. 19, the Small Resources Index has fallen to 1,786 from 2,340-a decline of 23.6%. I dare say it's going to be hard for many companies in this sector for a while yet.

    TGR: Where is the light in that tunnel? Is there investor sentiment that sees the value at these levels?

    PA: There is obviously value in the market. The institutions are starting to talk resources again. It's a question of timing. The markets need to feel more settled. The CBOE Volatility Index [VIX] recently rose above 30. That definitely affected the mood of fund managers and their willingness to enter this sector.

    TGR: Are some commodities seeing increased investor interest despite market conditions?

    PA: Yes. There are good prospects for nickel and zinc. From a fundamental supply and demand point of view, the scales are likely to be tipped in the favor of price rises in 2015-2016. In precious metals, the rise of the U.S. economy and the American dollar has meant a fall in our Australian dollar. The gold price in Australian dollars has cushioned our domestic gold producers. That has helped but there's still too much uncertainty.

    Another commodity with good prospects is uranium. The general consensus is that we've seen the bottom in the spot uranium market and we ought to see much more activity in that commodity in first half of 2015, especially if Japanese nuclear reactors come back on-line.

    TGR: For mined commodities, no other country in the world feels the impact of Chinese demand greater than Australia. Where is Chinese investment in all of this?

    PA: I don't think Chinese interest in Australian commodities has waned. As assets become distressed as commodity prices fall, we see Chinese companies still taking a keen interest in Australian assets. We don't really see that waning.

    TGR: At the end of 2013 you stopped covering a number of companies. Was that part of a yearly purge or was there more to it?

    PA: Sometimes things don't work out in the mining exploration business. That's exploration, but we've also undertaken a deliberate change in strategy to focus on higher market-cap, high-growth companies with liquidity that are either in production or quite close. We have become more choosey when it comes to where companies are in their lifecycle, but that's not to say that we've completely moved away from small explorers. But the conviction on the assets has to match the increased market sector risk.

    TGR: Is that basically the outline of your investment thesis?

    PA: The macro trumps the micro in the resource sector. From oil and gas through diamonds and everything in between, we've seen the effect of the macro on our markets. That 23% fall in the Small Resources Index indicates that. Going forward we have to make sure that the supply/demand fundamentals for a specific commodity make sense. If the fundamentals make sense, we would be much more willing to look at a small company that has exposure to that commodity.

    TGR: Australia's conservative government, headed by Prime Minister Tony Abbott, repealed the mining or "Super Profits Tax" on Oct. 1. Will investors notice the difference?

    PA: The tax did not raise anywhere near the revenue that it was expected to. I suppose its repeal has taken away some negativity toward investment in the sector. We're better off without it but I don't think it will necessarily change the view of Australia as an investment destination. Australia is always going to be seen as a relatively safe jurisdiction for mining projects.

    TGR: What are the three or four things you look for in junior mining equities in this market?

    PA: We look at management teams and their delivery on expectations. We'd much rather work with a management team with a track record in promising just enough to garner sufficient investor interest and then over-delivering. Nobody likes surprises but we can all live with a surprise or two on the upside. I love going back to our clients and saying, "I was a bit wrong on that, it actually turned out to be better than we thought it would be." That's a really important point.

    Second, we definitely want to see that the asset could turn into a profitable mining operation. Our best calls have occurred when we identified those opportunities as early as possible. Then we try and stick with a company over a number of years as it realizes its vision.

    The timing in the lifecycle of a company is very important. Investor interest in long-dated, capital-intensive projects is just not there. But if there's a company with a short-dated timeline to production where an obvious value uplift should occur, then that's a much better position in these markets.

    TGR: Do you think brokerages in general no longer form sufficiently long relationships with these companies?

    PA: That's an interesting question. Our model has been to identify-probably sooner than most-companies with really good assets. Obviously, you're going to get investors with different risk profiles and some will want to take some money off the table on a successful exploration event, for instance. If you can afford to have a long-term investment horizon, you often form good relationships with the companies involved and help them through their lifecycle. We've always tried to establish those relationships early on. And as long as the asset keeps delivering, we keep supporting those companies.

    TGR: What are some companies that you're covering with projects outside Australia?

    PA: Last time we spoke I mentioned Kingsrose Mining Ltd. (OTCPK:KGRSY) [KRM:ASX], which had a terrible year after its gold-silver mine went offline. Interestingly, Kingsrose's share price remained relatively stable at around A$0.35, whereas many other gold companies took bigger hits.

    The company just released the results from the September quarter. In July, Kingsrose received a forestry permit that allowed the company to reestablish production at its Talang Santo mine in eastern Sumatra. The company had a reasonably good quarter given that it is in ramp-up mode and treating mostly stockpiled and development ore. Kingsrose produced roughly 6,000 ounces [6 Koz] gold and 23 Koz silver at a grade of almost 10 grams per ton. I had anticipated high cash costs given that the company was in ramp-up mode and spending a lot on development. Cash costs came in at US$660/oz and all-in sustaining cash costs of just under US$1,000/oz.

    The mine development capital costs pushed the all-in costs up slightly because Kingsrose needs to develop along its narrow, high-grade veins. That was very positive considering the company is reinitiating production.

    TGR: The biggest red flag with Kingsrose is that it's operating in Sumatra, Indonesia. Should investors be concerned?

    PA: It's not for everybody. Institutions have a view one way or the other on Indonesia. Some will look at it and some won't. Indonesia has a lengthy mining history. Many companies operate there and the new government is pro-business. For us, it doesn't represent a big risk.

    TGR: We're getting close to the end of 2014. What's your general outlook for the junior sector in 2015?

    PA: It's still going to be quite hard, but certain commodities are going to do better than others. This comes down to what your views are on the macro. For instance, the supply/demand fundamentals for nickel suggest that nickel prices should start to rise as Chinese stockpiles of Indonesian nickel ore get depleted. That means in 2015 nickel companies should perform better than they have in recent years. We're also likely to see zinc producers and developers outperform their peers in other commodities as several large zinc mines shut down.

    Overall, we're not out of the woods, but we're always hopeful that the next year will be better.

    TGR: Thank you for your insights, Paul.

    This interview was conducted by Brian Sylvester of The Gold Report and can be read in its entirety here.

    Paul Adams is a geologist and head of research at DJ Carmichael. He has 16 years of experience in the mining industry, in Australia and elsewhere, and was previously chief geologist and evaluations manager at Placer Dome's Granny Smith mine. He is a member of the Australian Institute of Mining and Metallurgy and has a Graduate Diploma in Applied Finance and Investment from the Financial Services Institute of Australasia.

    Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

    DISCLOSURE:
    1) Brian Sylvester conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
    2) Paul Adams: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    3) The following companies mentioned in the interview are sponsors of Streetwise Reports: None. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
    4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
    5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
    6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

    Streetwise - The Gold Report is Copyright © 2014 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

    Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

    Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

    Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

    101 Second St., Suite 110
    Petaluma, CA 94952

    Tel.: (707) 981-8999
    Fax: (707) 981-8998
    Email: jluther@streetwisereports.com

    Nov 03 2:59 PM | Link | Comment!
  • Bob Moriarty: Flock Of Black Swans Points To Imminent Stock Market Crash

    Between a rising U.S. Dollar Index and black swan events around the world, it's looking like bunker time for Bob Moriarty. In his latest interview with The Gold Report, the 321gold.com founder delivers a frank overview of U.S. international policy and lambasts commentators who look to their tea leaves in search of the next market moves. But it's not all gloom and doom: Moriarty also discusses metals companies with "no-lose deals," where resource investors can take advantage of more than favorable odds.

    The Gold Report: Bob, in our last interview in February, we had currency devaluation in Argentina and Venezuela. We had interest rate hikes in Turkey and South America. We had a cotton and federal bond-buying program. Just eight months later in October, we've got Ebola. We've got ISIS. We've got Russia annexing Crimea. We've got a rising U.S. Dollar Index. We've got pullbacks in gold, silver and pretty much all commodity prices. With all this news, what, in your view, should people really be focusing in on?

    Bob Moriarty: There is a flock of black swans overhead, any one of which could be catastrophic. The fundamental problems with the world's debt crisis and banking crisis have never been solved. The fundamental issues with the euro have never been solved. The world is a lot closer to the edge of the cliff today than it was back in February.

    About ISIS, I think I was six years old when my parents pointed out a hornet's nest. They said, "Whatever you do, don't swat the hornets' nest." Of course, being six years old, I took stick and went up there and swatted the hornets' nest, which really pissed off the hornets. I learned my lesson.

    We swatted the hornets' nest when we invaded Iraq and Afghanistan. What we did is we empowered every religious fruitcake in the world. We said, "Okay, here's your gun, go shoot somebody. We'll plant flowers." We are reaping what we sowed. What we need to do is leave them to their own devices and let them figure out what they want to do. It's our presence in the Middle East that is creating a problem.

    TGR: Will stepping back allow the Middle East to heal itself, or will there be continued civil wars that threaten the world?

    BM: We are the catalyst in the Middle East. We have been the catalyst under the theory that we are the world's policemen and that we're better and smarter than everybody else and rich enough to afford to fight war after war. None of those beliefs are true. The idea that America is exceptional is hogwash. We're not smarter. We're not better. We're certainly not effective policemen.

    The Congress of the United States has been bought and paid for by special interest groups: part of it is Wall Street, part of it is the banks and part of it is Israel. We're just trying to do things that we can't do. What the U.S. needs to do is mind its own business.

    TGR: You've commented recently that you're expecting a stock market crash soon. Can you elaborate on that?

    BM: We have two giant elephants in the room fighting it out. One is the inflation elephant and one is the deflation elephant. The deflation elephant is the $710 trillion worth of derivatives, which is $100,000 per man, woman and child on earth. Those derivatives have to blow up and crash. That's going to be deflationary.

    At the same time, we've got the world awash in debt, more debt than we've ever had in history, and it's been inflationary in terms of energy and the stock market. When the stock and bond markets implode, as we know they're going to, we're going to see some really scary things. We'll go to quantitative easing [QE] infinity, and we're going to see the price of gold go through the roof. It's going to go to the moon when everything else crashes.

    TGR: How are you looking at the crash-short term, like before the end of this year? How imminent are we?

    BM: Soon.

    TGR: Are you in or out of the market?

    BM: Oh, I'm in. Not in the general market, but I'm in resources. There's a triangle of value created by a guy named John Exter: Exter's Pyramid. It's an inverted pyramid. At the top there are derivatives, and then there are miscellaneous assets going down: securitized debt and stocks, broad currency and physical notes. At the very bottom-the single most valuable asset at the end of time-is gold. When the derivatives, bonds, currencies and stock markets crash, the last man standing is going to be gold.

    TGR: So the last man standing is the actual commodity, not the stocks?

    BM: Not necessarily. The stocks represent fractional ownership of a real commodity. There are some really wonderful companies out there with wonderful assets that are selling for peanuts.

    TGR: In one of your recent articles, "Black Swans and Brown Snakes," you were tracking the U.S. Dollar Index as it climbed 12 weeks in a row, and you discussed the influence of the yen, the euro, the British pound. Can you explain the U.S. Dollar Index and the impact it has on silver and gold?

    BM: First of all, when people talk about the U.S. Dollar Index, they think it has something to do with the dollar and it does not. It is made up of the euro, the yen, the Mexican peso, the British pound and some other currencies. When the euro goes down, the Dollar Index goes up. When the yen goes down, the Dollar Index goes up. The dollar, as measured by the Dollar Index, got way too expensive. It was up 12 weeks in a row. On Oct. 3, it was up 1.33% in one day, and that's a blow-off top. It's very obvious in hindsight. I took a look at the charts for silver and gold-if you took a mirror to the Dollar Index, you saw the charts for silver and gold inversely. When people talk about gold going down and silver going down, that's not true. The euro went down. The yen went down. The pound went down and the value of gold and silver didn't change. It only changed in reference to the U.S. dollar. In every currency except the dollar, gold and silver haven't changed in value at all since July.

    The U.S. Dollar Index got irrationally exuberant, and it's due for a crash. When it crashes, it's going to take the stock market with it and perhaps the bond market. If you see QE increase, head for your bunker.

    TGR: Should I conclude that gold and silver will escalate?

    BM: Yes. There was an enormous flow of money from China, Japan, England, Europe in general into the stock and bond markets. What happened from July was the equivalent of the water flowing out before a tsunami hits. It's not the water coming in that signals a tsunami, it's the water going out. Nobody paid attention because everybody was looking at it in terms of silver or gold or platinum or oil, and they were not looking at the big picture. You've got to look at the big picture. A financial crash is coming. I'm not going to beat around the bush. I'm not saying there's a 99% chance. There's a 100% chance.

    TGR: Why does it have to crash? Why can't it just correct?

    BM: Because the world's financial system is in such disequilibrium that it can't gradually go down. It has to crash. The term for it in physics is called entropy. When you spin a top, at first it is very smooth and regular. As it slows down, it becomes more and more unstable and eventually it simply crashes. The financial system is doing the same thing. It's becoming more and more unstable every day.

    TGR: You spoke at the Cambridge House International 2014 Silver Summit Oct. 23-24. Bo Polny also spoke. He predicts that gold will be the greatest trade in history. He's calling for $2,000 per ounce [$2,000/oz] gold before the end of this year. We're moving into the third seven-year cycle of a 21-year bull cycle. Do you agree with him?

    BM: I've seen several interviews with Bo. The only problem with his cycles theory is you can't logically or factually see his argument. Now if you look at my comments about silver, gold and the stock market, factually we know the U.S. Dollar Index went up 12 weeks in a row. That's not an opinion; that's a fact. I'm using both facts and logic to make a point.

    When a person walks in and says, okay, my tea leaves say that gold is going to be $2,000/oz by the end of the year, you are forced to either believe or disbelieve him based on voodoo. I don't predict price; I don't know anybody who can. If Bo actually can, he's going to be very popular and very rich.

    TGR: Many people have predicted a significant crash for a number of years. How do you even begin to time this thing? A lot of people who have been speculating on this have lost money.

    BM: That's a really good point. People have been betting against the yen for years. That's been one of the most expensive things you can bet against. Likewise, people have been betting on gold and silver and they've lost a lot of money. I haven't made the money that I wish I'd made over the last three years, but I've taken a fairly conservative approach and I don't think I'm in bad shape.

    TGR: Describe your conservative approach.

    BM: The way to make money in any market is to buy when things are cheap and sell when they're dear. It's as simple as that. Markets go up and markets go down. There is no magic to anything.

    TGR: When Agnico Eagle Mines Ltd. (NYSE:AEM) purchased Cayden Resources Inc., it prompted a flurry of conversation about possible acquisitions. What do you think about that strategy, and do you have any companies that you're looking at as possible targets?

    BM: It's very funny that you talk about Cayden because I was writing about Cayden at $0.72 a share, talking about how wonderful it was. Agnico Eagle came in and offered Cayden about $3/share. I think anybody buying Agnico Eagle shares is going to make as much money as the investors who bought Cayden's shares at $0.72. Agnico Eagle is going to make a lot of money.

    TGR: If these companies are so cheap, why aren't we seeing more acquisitions?

    BM: We are seeing acquisitions. The really funny thing is everybody's ignoring them because they say, "Oh my God, my gold went down. I don't want to buy gold any more. I don't want to own it," which is stupid.

    TGR: Hard to argue with that. Bob, thanks as always for sharing your candid insights.

    BM: Happy to be here.

    This interview was conducted by Karen Roche of The Gold Report and can be read in its entirety here.

    Bob and Barb Moriarty brought 321gold.com to the Internet over 10 years ago. They later added 321energy.com to cover oil, natural gas, gasoline, coal, solar, wind and nuclear energy. Both sites feature articles, editorial opinions, pricing figures and updates on current events affecting both sectors. Previously, Moriarty was a Marine F-4B and O-1 pilot with more than 820 missions in Vietnam. He holds 14 international aviation records.

    Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

    DISCLOSURE:
    1) Karen Roche conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an employee. She owns, or her family owns, shares of the following companies mentioned in this interview: None.
    2) Bob Moriarty: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned: Novo Resources Corp. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over what companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    3) The following companies mentioned in the interview are sponsors of Streetwise Reports: None. Streetwise Reports does not accept stock in exchange for its services. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert can speak independently about the sector.
    4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
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